Corporate Governance Survey - 2018 Proxy Season Results

Corporate Governance Trends

A Comparison of Large Public Companies and Silicon Valley Companies

As outside legal counsel to a wide range of public companies in the technology and life sciences industries, many of which are based in Silicon Valley, Fenwick has collected information on corporate governance in order to counsel our clients on best practices and industry norms. We have collected this data since 2003 and believe this unique body of information is useful for all Silicon Valley companies as well as other public companies in the United States and their advisors. Download the complete report.

Fenwick’s annual survey covers a variety of corporate governance practices and data for the companies included in the Standard & Poor’s 100 Index (S&P 100), which are often presented as a desired norm, compared to the technology and life sciences companies included in the Silicon Valley 150 Index (SV 150), where the needs and circumstances of public companies can be quite different.

Comparative data is presented for the S&P 100 companies and the SV 150, as well as trend information over the history of the survey. In a number of instances the report also presents data showing comparison of the top 15 (which are of a scale similar to the S&P 100), top 50, middle 50 and bottom 50 companies of the SV 150 (in terms of revenue), illustrating the impact of scale on the relevant governance practices.

This in-depth survey was developed as a resource for board members, senior executives, in house legal counsel and their advisors, based in Silicon Valley and throughout the United States.

Key Findings Include:

Dual-Class Voting Stock Structure

Adoption of dual-class voting stock structures has emerged as a recent clear trend among Silicon Valley technology companies—among the mid-to-larger SV 150 companies—though it is still a small percentage of companies.

Historically, dual-class voting stock structures have been significantly more common among S&P 100 companies than among SV 150 companies, though the frequency in the SV 150 (10.9% in 2017 to 13% in 2018) has surpassed the S&P 100 (9.0% in 2016, 2017 and 2018) in recent years. This is largely a function of the recent significant trend in IPO companies with dual‑class structures who then join the SV 150 with such structures in place.

Classified Boards

Classified boards are now significantly more common among SV 150 companies than among S&P 100 companies. Compared to the prior year, classified boards remained fairly consistent, holding steady at 50.7% for the full SV 150 and 6.7% for the top 15 companies in the SV 150 while the S&P 100 has dropped to 3.0% in the 2018 proxy season after holding steady at 4.0% between 2016 and 2017.

Majority Voting

The rate of implementation of some form of majority voting has risen substantially over the period of this survey.

The increase has been particularly dramatic among S&P 100 companies, rising from 10% to 95% between the 2004 and 2018 proxy seasons. Among SV 150 companies, the rate has risen from zero in the 2005 proxy season to 57.9% in the 2018 proxy season (a small drop from 59.9% in the 2017 proxy season).

Stock Ownership Guidelines

The prevalence of stock ownership guidelines has generally increased over time in both groups but the SV 150 only recently surpassed the level of the S&P 100. For the second year in a row, the survey includes additional detail regarding the minimum holding amount and period requirements for executives and directors.

Board Diversity

2018 continued the long-term trend in the SV 150 of increasing numbers of women directors and declining numbers of boards without women members.

The rate of increase in women directors for SV 150 overall continues to be higher than among S&P 100 companies. When measured as a percentage of the total number of directors, the top 15 of the SV 150 now slightly exceed their S&P 100 peers (the top 15 averaged 25.8% women directors in the 2018 proxy season, compared to 24.7% in the S&P 100).

Companies with at least one woman director went from 78.2% to 82% over the past year for the SV 150. Over a two-year period the percentage of companies with at least one woman director grew by 8 percentage points.

Compliance with New California Statute

Most companies in the SV 150 would meet the new standard affecting California-based public companies set out by a new law mandating inclusion of women on boards of directors in 2019.

Our data show that most SV 150 companies will need to add women to meet the law’s 2021 standard.

Executive Officers

The number of executive officers tends to be substantially lower among SV 150 companies than among the S&P 100, and there continues to be a general decline in the average number of executive officers per company in both groups.

By contrast, the percentage of companies including General Counsel, Chief Legal Officer or a Chief Technology Officer or engineering executive as “executive officers” have been on a long-term upswing, though rising more slowly in recent years (with a small decline in CTOs among the SV 150 in recent years).

Fees Paid to Auditors

Companies in the SV 150 paid on average a fraction of the audit fees paid by companies in the S&P 100, with SV 150 companies paying on average $4.8 million compared to $22.2 million paid by S&P 100 companies.

The larger the SV 150 company by revenue, the higher its audit fees. The average audit fees of $15.2 million among the top 15 companies of the SV 150 (by revenue) were more similar to the fees paid by their peers in the S&P 100 (though still significantly lower on average).